US stocks could end this year 14% higher because banking turmoil will trigger a Fed pause, veteran investor Ed Yardeni says

• The S&P 500 could hit 4,600 points by the end of this year, according to Ed Yardeni.
• The veteran investor turmoil in the US banking sector to lead to the Federal Reserve pausing its rate hikes.
• "This banking crisis is going to be very well-contained," the veteran investor told CNBC on Wednesday.

US stocks could rally 14% by the end of the year, as the recent banking turmoil will likely to lead to the Federal Reserve pausing its rate-hiking campaign, according to Ed Yardeni.

The Yardeni Research president expects measures taken by the US central bank and the Federal Deposit Insurance Corporation, a government-run body that insures deposits, will keep the fallout in check.

"The financial crisis we've had here — this banking crisis — is going to be very well contained by both the Fed and the FDIC," the veteran investor told CNBC's "Closing Bell" on Wednesday.

"And at the same time, I think it's going to keep the Fed from raising interest rates even further," he said.

"I don't see the Fed lowering interest rates. But I think they are currently now at a restrictive enough level where they don't have to keep raising interest rates."

A pause in rate rises by the central bank will power gains in the S&P 500, according to Yardeni.

He expects the benchmark US stock index to reach 4,600 points by the end of 2023 - which would represent a 14% rise from its Wednesday closing level of 4,028.

The Fed has lifted borrowing costs from near-zero to just under 5% over the past year in a bid to bring inflation down to its 2% target level.

But CME Group's Fedwatch tool shows that most traders expect it to pause its tightening campaign at its next meeting in May in a bid to contain the turmoil sparked by the collapse of Silicon Valley Bank.

SVB's swift collapse earlier in March came after it disclosed massive losses on sales from its bond portfolio, with the crash in value fueled by the Fed's aggressive tightening campaign. Bond prices tend to fall when borrowing rise, because investors can get a better return from parking their cash in savings accounts.

A Fed pause would help prop up the value of struggling banks' investments and prevent the current situation from escalating into a full-blown crisis.

Meanwhile, some analysts have warned the turmoil could drag on stocks by fueling a credit crunch, as under-pressure banks become more conservative in making loans to listed companies.

But Yardeni shrugged off those concerns, saying stocks have already shown they can weather the tightening in credit conditions over the past year.

The main victims of the Fed's rapid hikes were assets that had seen their prices balloon due to low interest rates after the pandemic, he told CNBC. He listed meme stocks, Special Purpose Acquisition Companies, and the exchange-traded funds offered by Cathie Wood's Ark Invest as three examples.

"I don't think we're looking at an economy-wide credit crunch," he said. "I think standards are going to tighten. I think we've already seen a lot of bubbles burst without taking the economy down."

"We saw that last year with the meme stocks, with the SPACs, with the Ark stocks," he added.

Read more: SVB's collapse was fueled by 'people on iPhones' and won't spread across the US banking sector, Blackstone CEO says